Parsons Plastics v Purac Ltd [2001]

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

If the contract terms provide for it, a party may be entitled to set-off a counterclaim where a contract is not governed by HGCRA against an adjudicator's decision if that counterclaim has not been determined by the adjudicator.

LJ Pill, LJ Mummery and LJ Latham, Court of Appeal, Civil Division

12th April 2002

Purac were the main contractors under a contract for the design and construction of a sewerage plant. Purac entered into a written sub-contract with Parsons for the supply of an odour control package at the works.

Purac became dissatisfied with Parson's lack of progress and in an attempt to expedite matters made a payment direct to Parsons' steel supplier. Purac then declined Parsons' application for payment 3 under milestones of Schedule 3 of the sub-contract on the basis that the works had not reached the required stage. Purac then gave Parsons notice that they were taking over the remaining part of the sub-contract works (pursuant to clause 20(c) of the sub-contract) and ejected Parsons from the site.

Parsons referred the dispute as to whether they were entitled to payment under application number 3 to adjudication under the contract. The adjudicator found that Parsons were entitled to payment under clause 17(a) of the sub-contract for the individual tasks completed, without having to wait until all the works had been completed, and decided that Purac should pay 40% of the value of the completed activities plus interest.

Purac served a notice pursuant to clause 17(g) of the sub-contract, stating its intention to withhold payment of the sum awarded. However, this notice was served late. Purac claimed that having taken over the works under clause 20(c) of the sub-contract, they were entitled to deduct from Parsons the reasonable cost of completing the works, which was carried out by a third party contractor for a sum greater than that awarded to Parsons by the adjudicator.

Parsons applied to the TCC to enforce the adjudicator's decision, stating that his decision was "final and binding" under clause 27(h)(i) of the sub-contract and should be "complied with forthwith upon receipt" under clause 27(g). The issue was whether Purac or Parsons were entitled to summary judgment, in Parsons' case, for the enforcement of the adjudicator's decision, and in Purac's case, because the defence of set–off was available to them. Parsons argued that a set-off could only be taken into account if Purac had correctly served a withholding notice under clause 17(g).

The judge gave summary judgment on Purac's case and Parsons appealed.

On appeal, it was held that, whilst the contract provided that the adjudicator's decision had to be complied with forthwith, clause 31 of the sub-contract preserved the parties' equitable or common law rights to set-off and Purac's failure to give notice under clause 17(g) did not preclude the use of this right. The judge had therefore reached the right conclusion that Purac could set off against the adjudicator's decision any claims it had which had not been determined by the adjudicator.

If the contract terms provide for it, a party may be entitled to set-off a counterclaim where a contract is not governed by HGCRA against an adjudicator's decision if that counterclaim has not been determined by the adjudicator.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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